Risk Management in Volatile Markets

Market volatility has become permanent. Unlike previous eras where volatility spiked during crises and subsided during calm periods, today's environment features persistent elevated volatility punctuated by occasional spikes. This reality demands systematic risk management approaches.

Position Sizing and Correlation

Effective risk management begins with position sizing. No single position should represent such a large percentage of your portfolio that its decline materially impacts your overall wealth. Additionally, positions should have low correlation to reduce portfolio volatility.

Drawdown Protocols

Establish predetermined protocols for portfolio rebalancing when drawdowns reach specific thresholds. This removes emotion from decision-making and ensures disciplined action during market stress.

Behavioral Risk Management

The greatest risk in volatile markets is behavioral. Investors often sell after declines and buy after rallies, precisely the opposite of disciplined investing. Systematic risk management frameworks help prevent these costly mistakes.